Macroeconomics and Economic Growth

The International School of Kenya just hosted its last football tournament of the year. Teams from Nairobi’s poor neighborhoods dominated the event. Rain was pouring and many of the players were playing barefoot, but they still thrived, outperforming many teams from schools where the rich take their children.

In the 10-11 age group, the top three places went to teams from destitute neighborhoods, including Kibera, which some people have (wrongly) dubbed as the world’s largest slum. Kibera Sports Academy stood at the top of the podium, while second and third places went to Inspiration Kenya and Peace Academy respectively.

Many people, including Kenyans, consider slums the epitome of misery. The common wisdom is they breed disease, crime and many other forms and manifestations of poverty. Why then are slums growing bigger, with people migrating to them in ever increasing numbers?

When we talk about growth, we typically focus on growth rates, and so if we were to look at which countries had the greatest percentage increase in GDP per capita over the last decade (at constant international prices according to the World Development Indicators), we would get a table like this:

Three small countries studied in the book - SIFIRE (SIngapore, FInland, IREland) – not only grew at high rates but were able to sustain them.

The book – which concludes with a section on implications for African countries – contends that growth recipes for SIFIRE were not tightly bound to the East Asian model of extremely high rates of savings and investment (although arguably, Singapore was in many ways the epitome of that model, thanks to its mandatory savings scheme which led to gross national savings in the neighborhood of 50 percent for decades).

The larger point is that these three countries augmented physical investment with healthy doses human capital and knowledge; by “opening their windows and letting it [knowledge in various forms, for example, that embodied in FDI] stream in”. And even though the book does not explicitly discuss it, they did so without massive infusions of foreign aid. Or perhaps it was the lack of aid that forced them to be nimble, agile, and forward-looking?

Recent data show that poverty is falling around the world. Today, 43 percent of people are considered to be living in “poverty” (on less than $2 per day), compared to 30 years ago when almost three-fourths of the developing world’s population was doing so.

On June 5, World Bank Vice President for Sustainable Development Rachel Kyte will host a live online chat about Rio +20 and sustainable development at live.worldbank.org. Submit questions now, and then join Rachel Kyte and economist Marianne Fay on June 5 at 14:00 GMT/10 a.m. EDT.

Rio +20 is coming up in a few weeks. Some 75,000 leaders, advocates, scientists and other experts are expected in person, and tens of thousands more will be watching online to see how the world can advance sustainable development.

Many of us have been advocating for greener, more inclusive growth since before the first Earth Summit at Rio 20 years ago. We’ve seen economic growth lift 660 million people out of poverty, but we’ve also seen growth patterns run roughshod over the environment, diminishing the capacity of the planet’s natural resources to meet the needs of future generations.

The growing global population needs world leaders to do more than just check in at the UN Conference on Sustainable Development, Rio+20 – it needs them to move the needle now toward truly sustainable development practices.

What has been the result on cargo dwell time? Not much. On average, it is extremely difficult to reduce cargo dwell time. In Douala (Cameroon), for example, planners set an objective of 7 days at the end of the 1990s, but the dwell time remains over 18 days (despite real improvements for some shippers).

Comparing Kenya with Indonesia is counterintuitive—except perhaps when it comes to traffic jams—because of the many differences between the two countries. Indonesia is the world largest island state with more than 17.000 islands and a demographic heavyweight with 240 million people (six times more than Kenya). It is also 85 percent Muslim, while Kenya is about 85 percent Christian. Indonesia has massive natural resources – coal and gas (and some oil) – that it exports to other Asian countries, especially China, while Kenya’s economy is fuelled by a strong service sector.

There are many more reasons to challenge a comparison between these two countries but when one digs below the surface, there are also some similarities. Economically my friend was spot on: in GDP per capita terms, Kenya is roughly at the level of Indonesia a decade ago (about US$800 per capita). Today Indonesia is far ahead, but I don’t see any reason why Kenya couldn’t follow suit. Indeed, Indonesia is a good benchmark case for Kenya because it was never a “star reformer”, but instead a consistently strong performer.

Imagine a low-income country in the developing world suddenly discovering a large endowment of natural resources within its borders. Perhaps a large oil reserve is found just offshore, or a deposit of valuable natural minerals is uncovered just below the earth’s surface. Surely, such a discovery would be a blessing, as it would expand the country’s total stock of capital.

The up-tick in market tensions following recent bank downgrades, partial nationalizations and elections have caused CDS rates to rise sharply, although in most countries they remain below their fall 2011 highs. Stock markets have also tumbled, exchange rates depreciated and the turmoil has contributed to falling commodity prices.

Handing out a debit card or a 10 dollar bill to the fast-food franchise attendant is probably as natural to most people as buying their lunch every day. Many don't see this as a separate process but as an intrinsic part of the whole "getting lunch" deal.

This, however, doesn't hold true for 250 million people in Latin America and the Caribbean. Over 60 percent of Latin Americans adults are still unbanked and, as a consequence, unable to access plastic, checks, credit or other forms of banking tools that make life easy –and, in some cases, help achieve life goals such as buying a home or saving for retirement.